“Foreign Direct Investment in retail will not be a threat for the departmental stores model as the business is built more on trust. However, the hypermarket format will see intensified competition though not in the next 2-3 years. There is already reasonable level of competition now," said Sanjay Chakravarti, chief financial officer of Shoppers Stop, in a conference call after FDI in multi brand retail was approved in Lok Sabha.
He added that FDI would definitely not impact prices and that the business model’s success would become a sourcing game. He was confident that "nothing has changed on the ground", and that the potential for foreign players is limited to only nine states.
"Moreover some conditions are stiff for foreign players to start on their own. That is why there has been no formal announcement though the regulation had been formally announced two or three months ago. Nevertheless certain amount of strength witnessed in the political environment is a positive,” he said.
Shoppers Stop's expansion is subdued as it is focussed on making Hypercity profitable over next two years. Though it is open to a strategic partner, as of now there are no concrete plans, he added.
As per market data, the stock has been the second biggest gainer among frontline retail players with a weekly gain of 10 per cent.
The company witnessed some recovery in same-store sales growth during the September 2012 quarter but analysts continue to be cautious about its sustainability in the rest of FY13. Moreover, valuation of 60 times FY14 estimated earnings have definitely gone far ahead of fundamental, analysts said.
Says Nikhil Vora, co-head of research, IDFC Securities, “We maintain ‘underperform’ as current valuations adequately factor in business triggers over the next 12-18 months. The true economics of the business will only reflect from FY15 when Hypercity’s PAT will break-even.”